Investment Language 101 Series: TERM OF THE DAY: -- What Is: ' Drawdown ' | E.39 | Trading Candle Cheat Sheet Incl. Each Episode.

in #money3 years ago (edited)

A series designed to help all the new people flooding into & entering Crypto/Investments daily who get thrown into the rabbit hole so to speak and everything is new to them.

It is a TLDR / Short Form Series, covering ONLY one thing each episode in blue collar, easy to understand language to give a SHORT OVERVIEW of the term or lesson of the day.

It is specifically designed this way to keep it short and simple.

People can then search out extra info if they wish.

I've never seen a regular series or resource running on Steemit to continually address this basic need so I decided to do it.


What is....

' Drawdown ' ?


A drawdown is the peak-to-trough decline during a specific recorded period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the subsequent trough. Those tracking the entity measure from the time a retrenchment begins to when it reaches a new high.


Breaking Down...

' Drawdown ' :


This drawdown method of recording is useful because a valley can't be measured until a new high occurs. Once the investment, fund or commodity reaches a new high, the tracker records the percentage change from the old high to the smallest trough. Drawdowns help determine an investment's financial risk. Both the Calmar and Sterling ratios use this metric to compare a security's possible reward to its risk.

Drawdown is simply the negative half of standard deviation in relation to a stock’s share price. A drawdown from a share price’s high to its low is considered its drawdown amount.

-- Stock Drawdowns:

A stock’s total volatility is measured by its standard deviation, yet many investors, especially retirees who are withdrawing funds from pensions and retirement accounts, are concerned about drawdowns. During volatile markets, and markets that have a possibility of a correction, drawdown is a serious concern for retirees. Many are starting to look at the drawdown of their investments, from stocks to mutual funds, and considering their possible maximum drawdown (MDD) potential.

-- Drawdown Risk:

Drawdowns present a significant risk to investors when considering the uptick in share price needed to overcome a drawdown. For example, it may not seem like much if a stock loses 1%, as it only needs an increase of 1.01% to recover to its previously held position. However, a drawdown of 20% requires a 25% return, while a 50% drawdown – seen during the 2008 to 2009 Great Recession – requires a whopping 100% increase to recover the same position. Most investors want to avoid drawdowns of 20% or greater before cutting their losses and turning a position into cash investments.

Retirees in particular feel this risk, if they are doubling down on the drawdown economics as they withdraw further funds from the principal of their investments to fund their retirements. In many cases, a drastic drawdown, coupled with continued withdrawals in retirement can shorten retirement funds considerably.

-- Drawdown Assessments:

Typically, drawdown risks are mitigated by having a well-diversified portfolio and knowing the length of the recovery window. If a person is early in his career or has more than 10 years until retirement, the drawdown limit of 20% that most financial advisors expound should be sufficient to shelter portfolios for a recovery. However, retirees need to be especially careful about drawdown risks in their portfolios. Diversifying a portfolio across stocks, bonds and cash instruments can offer some protection against a drawdown, as market conditions affect different classes of investments in different ways.

Stock price or market drawdown should not be confused with retirement drawdown, which refers to how retirees should withdraw funds from their pension or retirement accounts.

Trading Candle Cheat Sheet:


Further Reading/Source/Resources

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This has really upset some people but I do not force my opinions on others, or need to communicate every detail of my life or issues, most people do not care anyways. I invested around 10 hours or more a day on Steemit most of my first 13 mths here, trying to build community, put out content and engage people, help and donate to people, and I just do not have that time in my life right now, and that includes for replies and voting/curation.
I have done my best, sorry if you do not understand like some are clearly having a problem with. It's a blogging platform, and I will do my best at everything, and to keep blogging.
Carry On.


I just recently stumbled upon this term the other day and found myself having to look it up, and now it's on feed. The law of attraction can certainly be wild!

That is freaky man!

Neat though, glad to help out how I can.

this is very informative and tells a lot of positive stuff about cryptocurrencies.
thanks for the great info

Wow Barry this is a nice one you got, investment terms really helpful to newbies.. Thumbs up!!

That is nice of of you to say -- thanks so much!

It is impossible to not like these great reports...👍


That is nice of of you to say -- thanks so much!

Do you have stops in place somewhere then to mitigate drawdown? This post is a great start to understanding where to place these limits. Very important for this market as it is still small and volatile... Crypto doesn't typically allow for such kind of trading. especially.. wallets wish I could somehow link a coldstore wallet with a leveraged platform.. this would solve this and make sleeping easier.

Stop orders are key in any volatile market.

The lack of liquidity in crypto overall still, will change and it has ----

Crypto market cap total was $15B the start of this year, it is $640B and that is around a 34X gain/ 1 year as I wrote on the other nite.

LOL, the sleeping, I hear you.

How do you do stop orders or hedges when bulk is cold store?

You can't. That's the trade off btw. security and convenience.

If we have something that decentralizes the money supply and threatens the business model

That is where we are headed, together.